CHIEF EXECUTIVES David M LeVan of Conrail, John W Snow of CSX and Norfolk Southern’s David R Goode emerged from a private meeting on January 31 having failed to agree a formula for replacing the three major eastern US railways by two.
On January 17, Conrail shareholders rejected overwhelmingly a resolution to waive a Pennsylvania anti-takeover law requiring companies to accept the most lucrative offer. CSX wanted to buy 40% of Conrail’s shares for $110 each with the other 60% to be purchased for stock, but this friendly merger - claimed by CSX to be worth $9·7bn - has been voted down.
Norfolk Southern’s hostile bid is $115 a share in cash for all shares. That $10·5bn deal is rejected by Conrail, but on February 12 NS launched a tender offer for all Conrail shares. This appears to be a futile gesture, as 9·9% is the maximum NS can hold without triggering ’poison pill’ defences that make a Conrail takeover prohibitively expensive.
Supported by Conrail’s board, CSX added to the 20% of Conrail’s shares it already owned by an oversubscribed offer to buy another 9·9%, but it is far from clear that CSX or Conrail shareholders will endorse a merger given the prospect of better terms from NS. Goode says ’Conrail’s owners have sent a powerful message to Conrail’s board that shareholders will not be coerced into accepting the deal CSX and Conrail tried to impose on them’. He sees the vote as ’a strong endorsement of Norfolk Southern’s better offer’.
In an attempt to resolve the stalemate, Linda Morgan, who chairs the Surface Transportation Board, said on January 21 that the federal agency would consider splitting up Conrail’s routes amongst the two rival suitors if they cannot agree on acceptable terms. ’Our job here at the board is to preserve competition, and to ensure that there is a competitive balance to any proposal that will come to us ... the board has a lot of things in its arsenal - divestiture is one’. The STB is expected to intervene this month, and will almost certainly require the granting of trackage rights to maintain competition. o